Classmates.com 2003 Annual Report Download - page 49

securities are reported in other income or expense. The Company had no material realized gains or losses during the six months ended
December 31, 2003 and the years ended June 30, 2003, 2002 and 2001. Significant fluctuations in short-term interest rates could have a
material impact on interest income and unrealized gains and losses from the Company's investment portfolio.
The primary objectives of the Company's short-term investment portfolio are preservation of principal and liquidity while maximizing
yield. Investments are made to achieve the highest possible rate of return for the Company, consistent with these two objectives.
The Company classifies outstanding interest payments due on its short-term investments as interest receivable, the balance of which is
reflected in other current assets.
Restricted Cash— Restricted cash consists of cash equivalents pledged as collateral for outstanding letters of credit, which in general
collateralize the Company's obligations for operating leases and amounts held in escrow related to telecommunications purchase commitments.
At December 31, 2003, the Company did not have any restricted cash.
Concentrations of Credit and Business Risk— Financial instruments that potentially subject the Company to a concentration of credit risk
consist of cash and cash equivalents, short-
term investments and accounts receivable. The Company's accounts receivable are derived primarily
from revenue earned from pay subscribers and customers located in the United States. The Company extends credit based
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upon an evaluation of the customer's financial condition, and generally, collateral is not required. The Company maintains an allowance for
doubtful accounts based upon the expected collectibility of accounts receivable; and to date, such losses have been within management's
expectations.
The Company evaluates specific accounts where information exists that the customer may have an inability to meet its financial
obligations. In these cases, based on the best available facts and circumstances, a specific reserve is recorded for that customer against amounts
due to reduce the receivable to the amount that is expected to be collected. These specific reserves are reevaluated and adjusted as additional
information is received that impacts the amount reserved. Also, a general reserve is established for all customers based on the aging of the
receivables. If circumstances change (i.e. higher than expected defaults or an unexpected material adverse change in a major customer's ability
to meet its financial obligations), the estimates of the recoverability of amounts due to the Company could be adjusted.
At December 31, 2003, three customers comprised approximately 25%, 16% and 10% of the consolidated accounts receivable balance. At
June 30, 2003, two customers comprised approximately 23% and 21% of the consolidated accounts receivable balance. At June 30, 2002, one
customer comprised approximately 17% of the consolidated accounts receivable balance. For the six months ended December 31, 2003 and the
years ended June 30, 2003 and 2002, the Company did not have any individual customers that comprised more than 10% of total revenues.
During fiscal 2001, three customers comprised approximately 20%, 14% and 10% of revenues, respectively.
At December 31, 2003 and June 30, 2003 and 2002, the majority of the Company's cash and cash equivalents was maintained with three
major financial institutions in the United States. Deposits with these institutions generally exceed the amount of insurance provided on such
deposits.
The Company's business substantially depends on the capacity, affordability, reliability and security of third-party telecommunications
and data service providers. Only a small number of providers offer the network services the Company requires, and the majority of its
telecommunications services is currently purchased from a limited number of vendors. A number of the Company's vendors have ceased
operations or ceased offering the services that the Company requires, causing the need to switch vendors. In addition, several vendors are
experiencing significant financial difficulties and have filed for bankruptcy and may be unable to perform satisfactorily or to continue to offer
their services. Although management believes that alternate telecommunications providers could be found in a timely manner, any disruption of
these services could have a material adverse effect on the Company's financial position, results of operations and cash flows.
Long-Lived Assets— Property and equipment are stated at historical cost less accumulated depreciation. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets, which is generally two to three years for computer software and
equipment and three to seven years for furniture, fixtures and office equipment. Leasehold improvements are amortized over the shorter of the
lease term or the estimated useful lives. Upon the sale or retirement of property or equipment, the cost and related accumulated depreciation or
amortization is removed from the Company's financial statements with the resulting gain or loss reflected in the Company's results of
operations. Repairs and maintenance expenses are expensed as incurred.
Identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from one to seven years. The
Company's intangible assets were acquired primarily in connection with business combinations (see Note 2).
The Company assesses the impairment of long-lived assets, which include property and equipment and intangible assets, whenever events
or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable in accordance with
SFAS No. 144,
Accounting for the Impairment or Disposal of Long
-
Lived Assets
. Events and circumstances that may indicate that an